In re Murray Energy Holdings Co.

654 B.R. 110

IN RE: MURRAY ENERGY HOLDINGS CO., et al., Debtors.

Case No. 19-56885

United States Bankruptcy Court, S.D. Ohio, Western Division

Signed September 29, 2023

Tiffany Strelow Cobb, Melissa S. Giberson, Brenda K. Bowers, Thomas Loeb, Vorys Sater Seymour & Pease LLP, Benjamin Butterfield, Todd Goren, Jennifer Marines, Lorenzo Marinuzzi, Erica Richards, Allison B. Selick, Morrison & Foerster LLP, New York, NY, for Creditor Committee.

Roma N. Desai, Bernstein Shur Sawyer & Nelson PA, Portland, ME, for Special Counsel.

Monica V. Kindt, Benjamin A. Sales, Office of the United States Trustee, Cincinnati, OH, for U.S. Trustee.

Jeremy Shane Flannery, Office of the United States Trustee, Columbus, OH, for U.S. Trustee.

MEMORANDUM OPINION AND ORDER (A) DENYING PLAN ADMINISTRATOR'S MOTION FOR SUMMARY JUDGMENT (Doc. 2536) (B) GRANTING IN PART AND DENYING IN PART PILLAR INNOVATIONS, LLC'S MOTION FOR SUMMARY JUDGMENT (Doc. 2537) AND (C) SCHEDULING STATUS CONFERENCE

John E. Hoffman, Jr., United States Bankruptcy Judge

I. Introduction

This contested matter involves a lien priority dispute between Pillar Innovations, LLC ("Pillar") and Drivetrain, LLC, the Plan Administrator appointed under the confirmed Chapter 11 plan ("Plan") (Doc. 2082, Ex. 1) of Murray Energy Holdings Co. ("Murray Energy") and its affiliated debtors and debtors in possession (collectively, "Murray" or "Debtors").¹ Pillar supplied equipment, labor and materials for several of the Debtors' coal mines in West Virginia, Ohio and Kentucky at various times in 2018 and 2019. When Pillar was not paid for its goods and services, it filed mechanic's liens in counties in each of those states against the Murray company or companies for which it worked.

In West Virginia, Pillar filed mechanic's liens against five companies: The Harrison County Coal Company, The Marshall County Coal Company, The Ohio County Coal Company, The Monongalia County Coal Company and The Marion County Coal Company (collectively, the "West Virginia Coal Operators"). Pillar filed its mechanic's liens in four counties: Marshall, Monongalia, Marion and Harrison.

In Ohio, Pillar filed one mechanic's lien in Belmont County against American Energy Corporation ("American Energy").

In Kentucky, Pillar filed one mechanic's lien in Ohio County against two Murray companies: Western Kentucky Consolidated Resources, LLC ("WKY-Resources") and Western Kentucky Coal Company, LLC ("WKY-Coal"). Pillar filed another mechanic's lien in Muhlenberg County, Kentucky against WKY-Resources and The Muhlenberg County Coal Company, LLC ("Muhlenberg Coal").

Based on these liens, Pillar filed secured claims against the relevant Debtors' estates. In response, the Debtors filed their First Omnibus Objection to Certain Mechanic's Lien Claims ("Omnibus Objection") (Doc. 1749), including those filed by Pillar and many other mechanic's lienholders, and sought to reclassify them as general, unsecured claims on two bases: (1) that the mortgages ("Term Loan Mortgages" or, where applicable, "Term Loan Mortgage") the Debtors granted to their prepetition senior term loan lenders ("Lenders") under the Superpriority Credit and Guaranty Agreement ("Credit Agreement") executed in June 2018 took priority over the mechanic's liens; and (2) that the properties subject to the mechanic's liens were of insufficient value to support the lienholder's secured status. Pillar responded to the Omnibus Objection, and both parties filed motions for summary judgment along with their respective responses and replies.²

For the reasons explained below, the Court concludes that Pillar's mechanic's liens as to certain parcels of property have priority over the Term Loan Mortgages held by the Lenders, and the Court grants summary judgment in favor of Pillar and against the Plan Administrator as to those liens and applicable claims. The Court is unable, however, to determine the priority of liens as to certain other parcels of property and thus denies Pillar's and the Plan Administrator's requests for summary judgment as to those liens and related claims. A status conference will be scheduled at which counsel for the parties should be prepared to address those claims.

II. Jurisdiction and Constitutional Authority

The Court has jurisdiction to hear and determine this matter under 28 U.S.C. § 1334(b) and the general order of reference entered in this district in accordance with 28 U.S.C. § 157(a). An action seeking the allowance or disallowance of claims against the estate is a core proceeding, see 28 U.S.C. § 157(b)(2)(B), as is the determination of the validity, extent, or priority of liens, see 28 U.S.C. § 157(b)(2)(K). "To the extent [a] matter involves a determination of the validity, extent and priority of liens on property of the estate and claims against such property, the matter 'would necessarily be resolved in the claims allowance process,' " BMO Harris Bank, N.A. v. Vista Mktg. Grp., Ltd. (In re Vista Mktg. Grp., Ltd.), 548 B.R. 502, 512 (Bankr. N.D. Ill. 2016) (quoting Stern v. Marshall, 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011)), and a bankruptcy court therefore would have the constitutional authority to finally adjudicate it. See Waldman v. Stone, 698 F.3d 910, 919 (6th Cir. 2012) ("When a debtor . . . seeks disallowance of a creditor's claim against the estate . . . the bankruptcy court's authority is at its constitutional maximum."); Black Diamond Comm. Fin. L.L.C. v. Murray Energy Corp. (In re Murray Energy Holdings Co.), 616 B.R. 84, 87 (Bankr. S.D. Ohio 2020) ("[B]ankruptcy courts have the constitutional authority to enter final orders adjudicating the validity and priority of liens on property of the estate."). The Court accordingly has the constitutional authority to finally adjudicate this contested matter.

III. Factual and Procedural Background

As stated above, in June 2018—about sixteen months before they filed their Chapter 11 cases—Murray Energy and certain of its affiliated companies entered into the Credit Agreement with the Lenders. See Banks. Decl., Doc. 2519-1 ¶ 7. To secure the repayment of the loans made under the Credit Agreement, they granted liens to the Lenders on their title and interest in and to land, fixtures, personalty and other collateral located in West Virginia, Ohio, Kentucky and Pennsylvania. See id. ¶ 8. The Term Loan Mortgages securing the Debtors' obligations under the Credit Agreement were recorded in July and August 2018 in various counties in those states. Id. ¶ 9. In late 2019 and early 2020, after the Petition Date, Pillar filed seven mechanic's liens in the counties in West Virginia and Kentucky where it had performed work for, or provided goods to, Murray. Pillar Claim Obj. Resp., Doc. 1819 at 2-3. Pillar also filed a mechanic's lien in Belmont County, Ohio in September 2019, a month or so before the Petition Date. Id. at 3. Pillar eventually filed proofs of claim as to each of these mechanic's liens.

This dispute began several months after the commencement of the Debtors' Chapter 11 cases, when Murray filed the Omnibus Objection. The Omnibus Objection itself does not identify the claims to which it objects. Instead, it includes as an exhibit a proposed order granting the Omnibus Objection with an attached "Schedule 1" listing disputed mechanic's lien claims. Omnibus Obj., Doc. 1749-1 at 6-12.³ The list contains 81 claims filed by 21 claimants, including the eight claims filed by Pillar. Pillar's claims are identified as Claim Nos. 1105, 1106, 1107, 1112, 1114, 1117, 1123 and 1299. Id. at 10. The Omnibus Objection seeks reclassification of all 81 mechanic's lien claims from secured to general, unsecured status.

The Omnibus Objection is bare bones. It first asserts that the priority status claimed by the lienholders is not reflected on the Debtors' books and records or supported under the Bankruptcy Code. It goes on to state that the Debtors had conferred with counsel in the various states and confirmed that the mechanic' liens were junior in priority to the Term Loan Mortgages. In support of the Debtors' proposed reclassification of the claims of the mechanic's lienholders, the Omnibus Objections states that

[i]n all cases, the asserted mechanics' liens did not arise until after prior liens had been granted by the Debtors and perfected in 2018 on all affected assets by holders of [a] certain superpriority term loan facility (the "Superpriority Term Loan, or after the Court's approval of the Debtors' postpetition financing (the DIP Facility") in these chapter 11 cases on December 12, 2019, where applicable. As of the date hereof, the collateral value is insufficient to cover the Superpriority Term Loan and the DIP Facility in full. Because there is no value cushion remaining to attribute to the Mechanic's Lien Claims, such Claims, at best, are allowable only as general unsecured claims.

Id. at 6. In other words, in the Omnibus Objection the Debtors advanced two theories in support of their request for reclassification of the mechanic's lienholders' claims. First, they say that the Term Loan Mortgages granted in 2018 to the Lenders were recorded before the mechanic's liens were filed and thus have priority over any later-filed mechanic's liens. Second, Murray maintains that the mechanic's liens were recorded after the Court's approval of the Debtors' DIP lending facility and are therefore junior to the security interests granted to those Lenders who provided postpetition financing under that facility. Under either theory, the Debtors argue, there are insufficient assets to support both the mechanic's liens and the Lenders' senior liens (i.e., the Term Loan Mortgages and liens granted to secure the DIP lending facility). Thus, according to the Debtors, the mechanic's liens claims must be reclassified from secured to unsecured status.

Pillar responded to the Omnibus Objection by noting that the use of an omnibus objection is procedurally improper for two reasons. First, the claims do not...